After the Close - Wall Street turned in an uninspired performance today after the Federal Reserve did largely what it was expected to do at the close of its two-day FOMC meeting. Stocks spent a good part of the session marking time ahead of the Fed’s mid-afternoon strategy announcement, but in the end closed largely unchanged after the central bank extended its Operation Twist program designed to nudge down long-term interest rates.

Truth be told, long-term interest rates are already so slim that they give rise to the specter of Japanese-style deflation, although a big part of the reason is the uncertainty in Europe. The Fed’s thinking is apparently that if it supplies enough stimulus, the economy has a better chance of eventually picking up the pace. Without a doubt, too, lower interest rates are helping the bedrock housing industry slowly recover from one of its deepest slumps ever.
At the close of trading, the Dow Jones Industrial Average was down 13 points but the NASDAQ was slightly higher. 

The day also saw another drop in oil prices, down to around $82 a barrel. The Energy Information Agency today reported a large rise in weekly crude oil inventories, which is indicative of sluggish demand. That took the wind out of the sails of selective oil shares, including those of Schlumberger (SLB) and ConocoPhillips (COP). The good news is that lower gasoline prices than in the past few months should help the economy this summer. Lower fuel cost also made airlines stocks, such as United Continental Holdings (UAL), winners on the day.

Tomorrow brings fresh data on the employment picture, with initial jobless claims expected to come in at a similar level to last week’s 386,000. If so, that would suggest a continuation of the more modest job creation that has been occurring lately, compared to the beginning of the year. The slowdown in hiring and the absence of inflationary pressures are likely two big reasons the Federal Reserve acted today.

Also on the agenda for Thursday: A reading on existing home sales for May; a business outlook from the Philadelphia Federal Reserve on the surrounding region; and data regarding May’s leading economic indicators. None of the projected figures for the above are expected to be anything exciting, which may portend unexciting market conditions in the absence of any favorable developments out of Europe, and before earnings season resumes in earnest in a few weeks.  - Robert Mitkowski

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.


12:00 PM ET - As we pass the midday hour on the East Coast, the major U.S. equity indexes are hovering around the neutral line, an area where they had been for most of this morning’s session. Investors appear hesitant to make any big commitments ahead of today’s announcement from the Federal Open Market Committee, which is currently meeting. The lack of direction to trading is evident in the narrow spread between advancing and declining issues on both the Big Board and the NASDAQ. 

The lackluster action could give way to wave of buying or selling this afternoon after the Federal Reserve issues its statement on the U.S. economy at just past 2:00 P.M. (EDT). Investors are waiting to see if the lead bank will take some monetary actions to further jump start a domestic economy that has been performing listlessly over the last few months. And, more importantly just how sizable a stimulus package it may be. Our sense is that with the economy still growing at a measured pace that the Fed will act modestly. Perhaps, an expansion of the current “Operation Twist” bond-buying program may be the route the central bank takes. 

From a sector perspective, most of the 12 major groups are modestly in negative territory. However, selling has been a bit more brisk in the consumer noncyclical sector. A dour outlook from Procter & Gamble (PG - Free Procter & Gamble Stock Report), in which the consumer products giant said sales and earnings will be lower due to weaker-than-expected growth in developed markets and unfavorable foreign currency movements, is dragging down the group. The stocks of fellow consumer staples companies Church & Dwight (CHD), Kimberly-Clark (KMB), and Clorox (CLX) are weaker on the P&G news.

Elsewhere, oil prices are lower today after the weekly inventory report showed a build of 2.86 million barrels—a draw of 1.30 million barrels had been the consensus expectation. At the noon hour, crude prices were off nearly $2 a barrel on the New York Mercantile Exchange. Likewise, precious metals are also under selling pressure, with August gold futures down more than $15 an ounce. 

The sellers are also out in the fixed-income market. The yield on the 10-year Treasury note, which moves in the opposite direction to the price, is currently up four basis points and near its 10-day high. Our sense is that the rise has less to do with investors’ sentiment about the stock market and more with the prevailing expectation that the lead bank will merely expand "Operation Twist." Such monetary action would aim to keep interest rates low by selling Treasuries of medium-term maturities and purchasing Treasuries of longer duration. 

Looking ahead to the second half of session, we fully expect trading volume to pick up after the release of the Federal Open Market Committee statement. Our sense is that a bit of profit taking following several positive trading sessions over the past week could be in the cards if the lead bank were to merely continue its irregular bond-buying program—the investment community, though, is clearly hoping for increased monetary action on the part of the Federal Reserve. Stay tuned.   - William G. Ferguson

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.


Stocks to Watch from The Survey After the market closed yesterday, Adobe Systems (ADBE), a developer of various computer software products that enable users to create, transfer, and print electronic documents, and investment bank Jefferies Group (JEF), both reported May-period results that disappointed investors. The two stocks are trading lower in the premarket this morning. FSI International (FSII) met a similar fate, as the manufacturer of equipment used in the fabrication of semiconductors and other microelectronic components announced solid May-period results this morning, but issued a weaker-than-anticipated outlook for the August quarter. The stock is down sharply in the premarket.

Shares of Procter & Gamble (PGFree Procter & Gamble Stock Report) are down modestly in pre-market trading after the consumer-goods company and Dow-30 component cut its fiscal fourth-quarter (ends June 30th) sales and earnings guidance due to weaker-than-expected growth in developed markets and unfavorable foreign currency movements. The company’s outlook for fiscal 2013 was disappointing, as well.

Private-equity firm Insight Venture Partners has increased its bid to buy Quest Software (QSFT), a provider of enterprise systems management products. The new offer price is $25.75 a share, $0.25 higher than a competing bid that was rumored to come from computer maker Dell (DELL). Quest stock is down slightly in pre-market trading. – Matthew E. Spencer

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.


Before The Bell - The bulls took back control again yesterday, following a one-day pause on Monday, and pushed stocks notably higher for the third time in the past four sessions. Once again, it was optimism that the Federal Reserve, which will conclude its two-day FOMC meeting early this afternoon, will either announce an extension of Operation Twist or initiate a third round of quantitative easing, that helped send equities broadly higher.

In addition to optimism about the Fed, there was also some relief that the latest housing data did not disappoint, as housing starts remained above 700,000 units on an annualized basis in May, while building permits, which are a more forward-looking indicator, rose rather strongly, to 780,000 homes on an annualized basis. Both levels are significantly up from their cyclical lows of around half a million homes, but are even more dramatically down from their peak levels of more than 2.3 million residences. So, while we are making progress on this front, there is clearly a long way to go before we undo the sizable damage done over the past half decade.

This good news, or potentially good news from housing and the Fed, more than offset some further dour tidings from the euro zone, where uncertainty lingers and bond yields in Italy, and especially Spain, are still headed higher. In the latter country, for example, yields on 12-month Treasury bills are at 5.07%, while returns on 18-month paper are at 5.18%. Yields on longer-dated issues are more than 7%--a level that is approaching unsustainability.

As to the Fed, with economic clouds gathering across Europe, and with the U.S. business recovery foundering, there is plenty of sentiment calling for Federal Reserve Chairman Ben S. Bernanke to do something. Of course, with interest rates at record low levels, there is comparatively little latitude for the central bank to act. The most likely move, we sense, is that the bank will extend its Operation Twist effort, in which the Fed sells medium-term issues and buys longer-term Treasuries. We think the initiation of a QE3 sort of quantitative easing program, a more significant action, is less likely at this time, as it might send a signal that the economy is in worse shape than it really is--and that is not something that the Fed would want to do, in our opinion.

Meanwhile, following yesterday's bullish run in which the Dow Jones Industrial Average added 96 points and the NASDAQ jumped by 34 points, Europe's bourses are largely mixed, as worries about Greece, Spain, and Italy persist. Over here, our equity futures are pointing to some initial gains for the equity market, notwithstanding the euro-zone woes and news out this morning that household products giant and Dow-30 component Procter & Gamble (PGFree P&G Stock Report) is paring its fiscal fourth (June) quarter revenue and profit forecasts. P&G shares, which closed at $62.21 yesterday, are indicated to open at less than $61 this morning. Still, PG aside, it will likely be the Fed that determines where we end up the session today.

At the time of this article's writing, the author did not have positions in any of the companies mentioned.